Cloud computing for accountants

Posted on September 18, 2014 · Posted in Accounting & Business

Ireland is becoming one of Europe’s major cloud computing centres. As a low tax regime it attracts new technology companies, which need to be supported by the data centres that are integral to cloud computing.  Those data centres need to be plugged into the type of powerful and reliable electricity grids that exist in the largest urban centres, such as Dublin.

 

Google, Microsoft and Amazon have all located substantial data centres near Dublin. With this infrastructure in place, other businesses – including SMEs and professional firms – are predicted to migrate at an exponential rate onto cloud computing in the next few years.

 

A recent report from KPMG – the 2013/14 Worldwide Cloud Computing Tax Guide – concluded that low tax regimes will attract data centres and this will in turn encourage MNCs to relocate related functions nearby. We are beginning to see clear evidence of the impact of tax incentives on data centre location.

 

A new data centre is to be built by specialist providers 5Nines, sited on land owned by the University of Ulster in Coleraine. This decision is directly related to an announcement by UK Chancellor of the Exchequer George Osborne in his March Budget of the creation of Northern Ireland’s first enterprise zone in Coleraine. This will provide 100% first year tax allowances on 5NINES’ capital spend.

 

KPMG explained that such tax incentives will become increasingly important in determining the location of data centres as the spend on cloud computing escalates. “With the market for cloud computing projected to soar from $40.7 billion in 2011 to $241 billion in 20201, companies have a powerful incentive to change their business models to support cloud-based commerce,” it said.

 

It is easy to see why users are being ever more drawn to cloud computing. KPMG’s survey found that most enterprises are already using cloud computing for some of their activities and an impressive 70% reported cost savings and efficiencies from doing so.  Accountants, as well as their clients, will increasingly migrate onto the cloud.

 

Many accountants are already using cloud computing – perhaps without realising it. Web-based email services are likely to be operating through a cloud server, as are social media sites and document-sharing facilities.  Accounting software systems such as Sage 200, Xero and QuickBooks Online operate through the cloud. In practice, much of what is called ‘cloud computing’ is little more than an extension of the type of outsourcing and managed service contracting that has become widespread.

 

The Irish Internet Association’s report Cloud Business concluded that the benefits of cloud computing are clearer to Irish SMEs than they are for the country’s MLEs (medium to large enterprises). Accordingly, the take-up of cloud computing amongst SMEs is significantly higher than it is for MLEs.

 

Gerry Power, a management consultant with Dublin-based Sysco Software Solutions, says that any accountancy firm giving serious consideration to migrating to the cloud should first consider what type of services they are interested in. “The most important thing is to determine the scope of what you are trying to do,” he explains.

 

“Are they seeking just an accounting package, or a CRM [customer relations management] suite, or an email service, including document management? Some accounting firms might be looking just for an accounting system.  There are free packages and very low cost packages out there.  But you get what you pay for.  There are security and functionality benefits from the mid-market packages – for example, the provision of separate databases for each customer.”

 

David Owens is managing director of Let’s Operate, which advises legal, financial and recruitment firms on the adoption of cloud computing. He says that accountancy firms’ potential needs and applications vary. “What is appropriate as a requirement for a practice with two staff is very different from the requirement for a practice with 20 staff,” he explains.

 

“One of the services all firms can use is cloud telephony, which we use ourselves. The standard call plan provides unlimited calls to the UK or Ireland.  One of the advantages for accountants is the fixed price, so limiting exposure to fluctuations in cash flow is attractive.  Cloud services do not necessarily provide cost savings – quoted savings of 40% or so are overstated – but the large benefit is around the timing of how you spend your money.

 

“With traditional IT you will see peaks and troughs of spending. It is very hard to understand with traditional IT whether you are getting value for money.  It is then very difficult to compare with the cloud to see if it will save you money.  With the cloud you have a nice simple price per month.”

 

Owens argues that contrary to common perception, moving to cloud computing can improve users’ security controls and data protection. Accountants that rely on widely used web-based email systems and Dropbox may be breaching data protection best practice and regulatory requirements, he warns.  With a secure cloud email system, security is improved, not just for email but also by eliminating the risk of sensitive information being lost through the theft of a laptop, or the loss of a memory stick.

 

Similarly, Owens suggests that accountants should seriously consider using cloud computing for file sharing – Owens recommends Citrix ShareFile. “This allows you to hold less information on your PC or laptop,” he explains, again improving data protection and security arrangements.

 

A further candidate for the cloud is email archiving. “You can go back and see any past emails, including from past staff,” continues Owens.  “From a regulatory and compliance point of view that gives you a lot of comfort.  You can always walk back in time and see what happened.”

 

Hosted desktop services are favoured by many accountants, adds Owens. Programmes are stored on the host server and accessed by the firm’s PCs and laptops.  “Accountants can be off-site with a client and access Sage or whatever from their laptop,” he says.

 

While Let’s Operate focuses on the opportunity for smaller firms to have a consistent spend on their IT services, other advisors point out that cloud computing can also enable firms or their clients to expand their operations without having to make substantial new IT infrastructure investments.

 

Ken Sherry, Colt Technology Services’ country manager for Ireland, explains: “Cloud-based technologies allow IT systems to be scaled-up or down on demand and in line with the needs of the business. It also gives firms access to a customised IT solutions package that is suited to their requirements while still providing the flexibility to grow as the business does, allowing them to consume technology services on a pay-as-you-go basis.  “By outsourcing their IT needs, accountancy firms are able to save time and money which can then be invested in their core area of business. They can also benefit from the continual upgrades offered through cloud-services, allowing them to have immediate access to the latest technology without the need for further investment in their own IT infrastructure. With the confidence that their IT needs are being met as they evolve, accountancy firms can continue to focus on their customers, rather than their IT infrastructure.”

 

Michael O’Dwyer, a partner at consultants BearingPoint Ireland, makes a similar case. He says: “The cloud provides business systems that are always available, easy to deploy and accessible anywhere; are quick to set up and integrate; need only minimal in-house IT infrastructure and support. Cloud computing applications are generally priced on a subscription model – so you pay for what you require.  As your business needs grow, you can expand your subscription, or move to more functionally rich solutions which match your newer business requirements.

 

“There are a number of delivery models such as Infrastructure as a Service (IaaS), Platform as a Service (PaaS) and Software as a Service (SaaS), each of which offers accounting firms and other organisations a different set of benefits.” (See box.)

 

O’Dwyer lists the key benefits of cloud delivery as providing businesses with greater agility and flexibility, with services paid for according to use; avoidance of IT infrastructure capital spend, with typically a lower total cost of ownership; improved focus on the core business; improved security and reduction in key business risks; a reduction in time taken to launch or change services; mobile working solutions; and the chance to move to different business models.

 

None of this, of course, is a reason for an accountancy firm to jump straight into cloud computing. But it does suggest that commerce as a whole is embarked on what is probably an unstoppable journey.  Whether or not a firm wants to adopt cloud computing itself, there are very strong arguments that all firms will need to gain a firm understanding of the sector.  Then they will not only be better placed to make their own related business decisions, but, crucially, they will also be in a strong position when advising clients.

 

Box

 

What is cloud computing?

 

Cloud computing provides IT services from a distance. Users access services via their browsers, with the third party vendor storing data and providing associated services. Cloud computing allows users to do without servers and limits their need for other IT infrastructure and software acquisition.

 

Who is responsible for data protection when cloud computing is used?

The client remains responsible for ensuring data protection laws are complied with. Irish law prevents personal data being exported outside the EU unless there is sufficient guaranteed data protection. Data may also become subject to local laws in the country where it is stored: for example, in the United States.  The client is also responsible for ensuring that the contractor’s staff are security vetted to the necessary level to comply with any legal requirements.

 

What happens if the vendor’s IT system goes up in flames or crashes?

The client must ensure the vendor has an effective back-up and disaster recovery system. This is a regulatory requirement for financial services businesses.

 

What is a data centre?

Data centres hold the powerful IT systems that store and process the client’s data. They are massive users of electricity and so must be located in areas where the electricity grid infrastructure is reliable and has sufficient power.

 

The three cloud computing delivery models

IaaS – Infrastructure as a Service – provides the IT infrastructure, including server, storage and networking.

PaaS – Platform as a Service – provides the infrastructure, plus the platform for the development of applications.

SaaS – Software as a Service (SaaS) – provides the entire suite of services from infrastructure to application.

 

A detailed overview of cloud computing and the alternative options is contained in the report ‘Adopting the Cloud: decision support for cloud computing’, published by NSAI Standards.

 

An analysis of the risks versus the benefits of cloud computing is published in the report ‘Cloud Business’ by the Irish Internet Association.